Month: June 2014

Carry Chaos – The Very Visible Hand In Yen Futures

With USDJPY near 4-week lows and, as BofAML's Macneil Curry warns "is setting up for a breakdown", we thought a look back at the total and utter chaos that last week's FOMC statement (and press conference) unleashed in futures markets. JPY futures were the only market in the world that was halted as the statement was revealed as Nanex shows below it seemed 'someone' decided that 'carry traders' needed to show the world just how positive what Janet said was… then within 24 hours, chaos was unleashed as the real world algos tried to come to terms with just what the Fed had done. With every asset class in the world predicated on JPY weakness, this market behavior shows just how illiquid and thin the world's risk really is.

 

Via Nanex,

Trading in Japanese Yen futures had two notable events within a 34 hour period. The first event was a trading halt after release of the U.S. GDP at 8:30 AM (EDT) on June 25, 2014: it was the only instrument in the world that we know of which halted then. The second event was extreme volatility during the opening of the next day's session at 18:00 on June 26, 2014.

1. September 2014 Japanese Yen (6J) Futures – June 25, 2014

2. September 2014 Japanese Yen (6J) Futures – June 25, 2014 – Zoom of Chart 1.

3. September 2014 Japanese Yen (6J) Futures  – June 26, 2014.

4. September 2014 Japanese Yen (6J) Futures – June 26, 2014 – Zoom of Chart 3.

*  *  *

Totally normal, totally human, totally natural market behavior…

And since then JPY has rolled over dramatically and the 'pinned' Nikkei has given up all its gains (with only US stocks stubbornly ignoring it for now)…

 

But BofAML warns the break is coming in JPY – and thus pressure on all risk assets…

$/¥ is setting up for a breakdown. Get ready.

We reiterate our bearish view on $/¥, targeting 99.21, potentially as far as 97.40. Yes, we hold this view despite being bearish Treasuries. We are looking for a correlation breakdown between the two markets. While $/¥ has not yet closed below the 200d (now 101.70), we think that it is just a matter of time.

Indeed, the entire range trade from the Feb-04 lows, at 100.75, is setting up for a bearish resolution, from which a decent TRADEABLE downtrend should emerge. GET READY.




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Thad Cochran, The GOP Establishment, and the Scourge of Red-State Socialism

By any measure, Mississippi has been on the
government teat longer and more fully than the kid on that
creepy Time magazine cover about attachment parenting.
According to the Tax Foundation, Mississippi has never been lower
than fourth in the amount
of federal taxes paid vs. the amount of federal money
received.  In 2005, Mississippi received a jaw-dropping
$2.02 in federal money for every $1 of taxes its residents sent to
Washington.

By 2010, that had jacked up further still to $2.47. That same
year, the Tax Foundation calculates that
fully 49 percent of Mississippi’s state general revenue
comes from federal taxpayers who will never step foot in Morgan
Freeman’s and William Faulkner’s beloved stamping grounds.

That’s from
my latest Daily Beast column, which denounces the
scourge of what I call red-state socialism, “the process by which
supposedly conservative states—typically filled with politicians
and voters who rail against welfarism in all its manifestations—are
gifted massive subsidies courtesy of mostly blue-state voters.”

It’s not just Mississippi, of course…. In 2010, states
overall received $1.29 in federal gravy for every dollar residents
kicked toward D.C. (such a persistent mismatch between money in and
money out exemplifies what I’ve called Groupon
Government and explains massive and mounting debt and
deficits). Besides Mississippi, other notable red-state freeloaders
included Alabama ($2.03), Alaska ($1.93), and South Carolina
($1.92). “Republican states, on average, received $1.46 in federal
spending for every tax dollar paid,” writes Dave Gilson.
“Democratic states, on average, received $1.16.” Shame on both
sides for bilking the system—and props to places as generous and
different as Delaware (which received just 38 cents per dollar
paid), New York (72 cents), California (87 cents), Texas (85
cents), and Massachusetts (83 cents).

Few
individuals embody the GOP’s phony commitment to limited government
and spending restraint better than Sen. Thad Cochran, who earlier
this beat back a primary challenge from Tea Party favorite Chris
McDaniel. Yes, he was in favor of all of Bush’s wars, NSA
surveillance of citizens, The Patriot Act. Yes, he fought hard to
keep earmarking alive because he was an unapologetic supporter of
pork spending when directed to his special interests.

As the Tea Party group FreedomWorks has
documented, Cochran voted in favor of Medicare Part D, the
Bush-era abomination that gave free and reduced-price prescription
drugs to seniors (without creating any revenue to pay for such
largess!). He pulled the lever on the expensive and ineffective
federal boondoggle known as No Child Left Behind, which
accomplished nothing except for more federal bureaucracy in K-12
education. He’s voted against balanced budget plans put forth by
Sen. Mike Lee (R-Utah) and others. Cochran loves farm subsidies and
high sugar tariffs.


Read the whole thing.

The GOP is so far in the crapper with voters (just 25 percent of
whom cop to affiliating with the Party of Lincoln), it may not be
able to salvage itself. Certainly if it doesn’t kick red-state
socialists such as Cochran to the curb, it’s got no hope
whatsoever.

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Russia “Not Optimistic” After EU Peace Talks; Threatens To Limit Reselling Gas To Ukraine

With Petroshenko agreeing to extend today’s cease-fire deadline for 3 days, the Russians, unfortunately, are not optimistic after the ‘expert-level’ talks in Europe. Given this, it appears Russia is preparing its retaliation for possible further sanctions that are being waved by Europe and the US. As AP reports, Russia’s state-controlled gas company, Gazprom, says it could limit supplies to European customers that intend to re-sell the natural gas on to Ukraine. Whil enot naming specific countries, the Gazprom CEO explained he needed to clamp down on the so-called reverse-flow supplies the the cut-off Ukraine as they were “half-fraudulent schemes.”

 

Russia not optimistic…

  • *RUSSIA NOT OPTIMISTIC AFTER EXPERT-LEVEL EU TALKS JUST ENDED
  • *RUSSIA EXPECTS CONSTRUCTIVE APPROACH FROM EU, UKRAINE

And appear to be preparing for sanctions…

*GAZPROM MAY LIMIT EU COS. SENDING GAS IN REVERSE GAS TO UKRAINE

 

Russia’s state-controlled gas company, Gazprom, says it could limit supplies to European customers that intend to re-sell the natural gas on to Ukraine.

 

Gazprom’s CEO Alexei Miller said Friday that the company is closely monitoring the situation and may curb shipments to European nations that would pump the Russian gas to Ukraine in the so-called reverse supplies, which he has described as a “half-fraudulent scheme.” He wouldn’t name any specific countries.

 

Gazprom this month cut gas shipments to Ukraine amid a debt and pricing dispute. Supplies to Europe via Ukraine and other pipelines haven’t been affected, however. Ukraine has sought to counter the Russian move by trying to negotiate gas supplies from other European countries that buy Russian gas.

And if the West thinks sanctions will slow them down… think again…

  • *GAZPROM TO REPLACE CENTRAL ASIAN GAS SUPPLIES WITH RUSSIAN FUEL
  • *GAZPROM, CHINA TO SIGN CONTRACT ON ADDITIONAL 30BCM/YR OF GAS

 

So D-Day is now Tuesday…




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Oklahoma GOP Congressional Primary Loser: “I…Am a Human… I will Never use a Look Alike…”

Of all the political dirty tricks getting executed in Ukraine
yet still pretending you hold office and can run for re-election
has to be among the worst!

Timothy Murray, a losing Republican primary candidate for an
Oklahoma House seat against incumbent Rep. Frank Lewis, insists
that even though Lewis earned 82 percent of the vote this week,
giving him the win is invalid, since, as everyone knows, the real
Frank Lewis was hanged by “the World Court” in the Southern Ukraine
in 2011 and replaced by a body double of some sort, one that might
be an “artificial or manmade replacement,” according to a
statement on Murray’s website.


According to
Huffington Post, Lewis, or his double, responded:

“Many things have been said about me, said to me in the course
of all my campaigns. This is the first time I’ve ever been accused
of being a body double or a robot,” Lucas said….

A representative from Lucas’ office told The Huffington Post
that Lucas would not comment further on the allegations, but said,
“I can assure you that the congressman is alive.”

Murray has sent this statement to the state election board, but
“had not formally filed a petition asking for a recount or
alleging election irregularities. He has until 5 p.m. Friday to do
so.”

I wrote about a
more successful “wacky candidate” from Iceland
yesterday.

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The Pitchforks are Coming…– A Dire Warning from a Member of the 0.01%

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.

From Nick Hanaeur’s excellent Politico Op-Ed: The Pitchforks are Coming…For Us Plutocrats

Over the past several years, I have been extremely critical of the 0.01% as a socio-economic class, often referring to them as criminal oligarchs. This has nothing to do with the incredible sums of money they have amassed. I’m simply not interested in chasing that kind of wealth, nor am I an envious person. I don’t care how much money anyone has. What I do care about is the kind of power that such money can buy, and how that power can is then abused to purchase politicians and run roughshod over entire societies. I have also been disgusted with the fact that the 0.01% as a class seem self-absorbed, apathetic and delusional when it comes to the catastrophe the current economic and financial system is reaping upon the planet. So busy are they patting themselves on the back and scrambling to acquire that next billion to see what is rapidly unfolding beyond their moats.

continue reading

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For the 100th Anniversary of WWI, Consider Maybe a Video Game

Saturday marks 100 years since Austrian Archduke Franz Ferdinand
was assassinated. His death exacerbated conflicts in Europe that
lead to World War I a month later.

This week, as this anniversary approaches, top France-based game
company Ubisoft has released Valiant
Hearts, a video game that shows the experiences of those
caught up in the extremely bloody struggle. As you can see by the
trailer below, this game is not Call of Duty. It’s not a
shooter-style war game with players running around ducking behind
walls and shooting down hordes of anonymous enemies or fellow
gamers:

The game puts players in control of four different people with
different backgrounds and nationalities (and an adorable dog) in a
point-and-click style adventure/puzzle game. In addition to the
mood established by the trailer above, the game highlights
significant amounts of accurate historical information about World
War I. Various knick-knacks the player picks up, from toys to
tools, describe their historical contexts. Players will find actual
letters written by those participating in or affected by the war.
The gameplay is fairly simple, perhaps too simple for some
critics. I haven’t played the game yet (I plan to pick it up
this weekend), but from watching others play online it seems clear
to me that Valiant Hearts is really an educational
experience gamified enough so that it doesn’t grow dull. It’s not a
game you’re really meant to be able to lose. And its cartoony style
means it’s also potentially a game to be used to introduce children
to some heavy subject matter—particularly useful given how much
less attention World War I gets nowadays (at least here in the
states).

This game has also gotten lots of game media coverage. Though it
has an “indie game” feel to it, the trailer above was actually
highlighted in the recent E3 video game trade conference, a
massive, annual multi-day show of what’s coming in the industry. So
in the midst of video clips from those typical shooting games
everybody recognizes and revealing the latest iteration of
Mortal Kombat, Valiant Hearts also generated
significant buzz. The attention is a reminder that the growth and
diversification of the video game industry has created markets for
all different kinds of interactive expressions, not just the
industry equivalent of summer blockbusters.

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Federal Workers May be ‘Bone-Headed,’ But Government Is Not the ‘Enemy,’ Claims President. Honestly, You’re Screwed Either Way.

Obama gazingSpeaking at a
town hall in Minneapolis, Minnesota, President Barack Obama
defended, sort of, government employes who have been embroiled in a
series of scandals and shenanigans—not all of them, by any means,
the fault of his administration. Basically, he said that government
workers may “do bone-headed things,” but that doesn’t mean
“government is the enemy or the problem.”

What’s interesting is that the president felt compelled to argue
that the federal behemoth’s minions are stupid rather than
malicious, when all he’d been asked is if they could expect regular
paychecks.

His comments came in response to Katie Peterson, a 29-year
employee of the Defense Contract Management Agency, who noted,
“there’s been a few rough patches with three years of pay freeze
and sequestration and furloughs. And we’re just kind of wondering
what you foresee for the next fiscal year for government workers.”

Obama then went into an extended and slightly off-subject riff
on the merits of government and its staff.

Well, let me make a couple of points.  First of all, folks
in the federal government, the overwhelming majority, they work
really hard doing really important stuff.  And I don’t know
why it is that—(applause)—I don’t know when it was that somehow
working for government—whether the state or local or federal
level—somehow became not a real job. When you listen to some of the
Republican rhetoric sometimes you think, well, this is really
important work that we depend on.

OK. We’ve all heard the president’s “government is good” schtick
before, even to the point of denigrating private initiative
(“you
didn’t build that“). But soon the response gets a
bit…defensive?

historically, it’s been the private sector that drove the
economy, but it was also a whole bunch of really great work done by
agricultural extension workers and engineers at NASA and
researchers at our labs that helped to create the platform and the
wealth that we enjoy.  And so this whole idea that somehow
government is the enemy or the problem is just not true.

Now, are there programs that the government does that are a
waste of money or aren’t working as well as they should be? Of
course. But I tell you, if you work in any company in America, big
company, you’ll find some things that they’re doing that aren’t all
that efficient either. Are there some federal workers who do
bone-headed things? Absolutely. I remember the first week I was on
the job I talked to my Defense Secretary, Bob Gates, who’s older
and had been there a long time. I said, do you have advice for me,
Bob? He says, one thing you should know, Mr. President, is that at
any given moment, on any given day, somebody in the federal
government is screwing up.  (Laughter.)  Which is true,
because there are 2 million employees. Somebody out there—if 99
percent of the folks are doing the right thing and only 1 percent
aren’t, that’s still a lot of people.

Yeah, but companies “that aren’t all that efficient” can’t make
their customers keep paying them so their doors stay open. And
“federal workers who do bone-headed things” have the means to turn
lots of people’s days to shit, awfully fast—and they’ve done so
with astonishing frequency.

That’s sometimes literally true, as with the Environmental
Protection Agency (EPA) employees who
crap in the hallways of their own buildings. Yeah that’s who
you want
raiding your business because you’re supposedly befouling the
environment.

And shitty days a-plenty, generally in a less literal sense,
resulted from Veterans Health Administration officials cooking the
books on waiting lists for care,
denying treatment to vets even as they guaranteed themselves

glowing performance reviews.

Even if we suspend all rational judgment for the moment and
accept that it was mishap and incompetence, not malice, that

caused the loss of potentially sensitive emails sought in the
investigation of an Internal Revenue Service (IRS) official for
politically motivated targeting of non-profit groups, how is that
supposed to be reassuring? Is the IRS now going to accept
dog-ate-my-homework excuses from records-shy taxpayers at audit
time?

Is bone-headedness contagious? Because EPA officials apparently
contracted the same strain, with
similar consequences for their electronic storage of
potentially awkward communications.

When all is said and done, it doesn’t matter whether government
officials intentionally choose to be your enemy, or just fuck
things up through bone-headed stupidity. If you’re on the receiving
end, you’re screwed.

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The Panic Behind The Propaganda: Why The Fed Wants You To Sell Your Bonds

As Barclays’ Joe Abate warns, delivery fails in the Treasury market have surged recently. While not at the scale of the 2008 crisis yet, we suspect the spike is what is panicking the Fed to say “the market is wrong”, talk up short-end rates, and implore the public to sell-sell-sell their bonds. The Fed’s market domination has meant massive collateral shortages (as we have detailed previously) and now more even that during last year’s taper-tantrum, the repo market is trouble.

The fails are greater than during last year’s taper tantrum.

But well below the 2008 crisis levels (for now)

Which is why The Fed is in panic mode to get everyone selling bonds.

As Abate write in his note,

Delivery fails in the Treasury market have surged recently. On Monday, the DTCC reported that incomplete deliveries reached a 52-week high at $120bn (Figure 1). And a week earlier, Treasury fails – as measured by the Federal Reserve – exceeded 6% of daily dealer Treasury transactions volumes. By contrast, usage of the Fed’s securities lending program has been relatively constant at around $15bn/day. Recall that each day the Fed auctions securities from its securities portfolio (at a 5bp fee) for dealers to borrow overnight to cover their shorts. In effect, the securities lending program is a backstop source of specific issue supply that dealers can access temporarily to prevent market disruptions caused by fails or incomplete deliveries.

But what if the Fed does not own any of the issues that dealers need? Indeed, this appears to be driving the surge in recent fails, which have been concentrated in the OTR 5s and 10s. Operation Twist and the sale of all the Fed’s <3y paper has meant that the Fed does not own any securities that mature until early 2016. Without maturing paper, the Fed is unable to buy OTR issues at Treasury auctions. The fact that the OTR issues are trading special in the repo market also means that the Fed avoids buying these securities in its (diminishing) QE purchases.

In the absence of Fed supply, dealers face a choice: fail and pay a 300bp fee for not completing the promised delivery or offer a sufficiently low financing rate to coax supply of the issue back into the market. In effect, the 300bp fails charge becomes the threshold determining how rich an issue will trade in the repo market or whether it will fail.4 Regularly scheduled re-openings and supply lured in from customer holdings in lendable accounts will eventually cheapen these issues. But in the meantime, the issues are likely to trade deeply special.

A quick reminder of what the repo market is… (via IMF)

Think of the bilateral repo market via the analogy for old clothing trade: Typically, merchants in developed countries shrink wrap old clothes in shipping container sized bundles (under pressure) and send the plastic wrapped block to poor countries. There, a clothing broker buys it, and resells it by weight to jobbers. So if the block weighs 500 pounds and they sell it in 10 pound lots, all 50 people gather around. But some people pay slightly more to be at the front of the crowd, and some pay slightly less to be at back. Then the jobber pops the bundle open with a big knife and the shrink wraps literally explodes; everyone gathered around jumps for the best pieces. Collateral desks are a bit like those jobbers. Big lots come in from hedge funds and security lenders, and the large bank’s collateral desk paws through it, searching for gems. Those gems go out bilateral to customers who’ll pay a premium. The remainders go to the guys in the back of the line (for example, triparty repo)

But why do I care about some archaic money-market malarkey? Simple, Without collateral to fund repo, there is no repo; without repo, there is no leveraged positioning in financial markets; without leverage and the constant hypothecation there is nothing to maintain the stock market’s exuberance (as we are already seeing in JPY and bonds).

Crucially, it should be inherently obvious to everyone that the moves we see in the stock market is not about mom and pop choosing to invest in the stock market (or not) as the ‘cash on the slidelines’ fallacy is “completely idiotic’ but about the marginal leveraged machine (or human) quickly jumping oin momentum.

The spike in “fails to deliver” highlights a major growing problem in the repo markets that provide that leverage… and thus the glue that holds stock markets together.

Wondering why JPY and bond yields have diverged so notably from stocks in recent days… repo effects (it’s just a matter of time before it hits stocks)…

So that explains why the Fed is so desperate to talk you into selling your bonds – most notably the short-end by demanding you listen to what Yellen said about raising rates.. as that reduces the shortfall of collateral that repo needs and restocks the banks with repo-able funds.

*  *  *

Is that why a noted dove Jim Bullard was so visibly hawkish yesterday?

The irony of course of the Fed explaining how rates will rise faster is that it spooks stock investors who have grown used to exuberant liquidity supply and roitates them to bonds… which merely exacerbates the problem the Fed has




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“To My Fellow Filthy Rich Americans: Wake Up, People. The Pitchforks Are Coming”

Excerpted from Nick Hanauer’s OpEd in Politico (read more here),

Memo: From Nick Hanauer

To: My Fellow Zillionaires

You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor.

I tell you all this to demonstrate that in many ways I’m no different from you. Like you, I have a broad perspective on business and capitalism. And also like you, I have been rewarded obscenely for my success, with a life that the other 99.99 percent of Americans can’t even imagine.

…

But let’s speak frankly to each other. I’m not the smartest guy you’ve ever met, or the hardest-working. I was a mediocre student. I’m not technical at all—I can’t write a word of code. What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now?

I see pitchforks.

At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.

But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.

Many of us think we’re special because “this is America.” We think we’re immune to the same forces that started the Arab Spring—or the French and Russian revolutions, for that matter. I know you fellow .01%ers tend to dismiss this kind of argument; I’ve had many of you tell me to my face I’m completely bonkers. And yes, I know there are many of you who are convinced that because you saw a poor kid with an iPhone that one time, inequality is a fiction.

Here’s what I say to you: You’re living in a dream world. What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.

 

(read more here)




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